The corner market has decided to expand its retail store by building on a vacant

Question

The corner market has decided to expand its retail store by building on a vacant lot it currently owns. This lot was purchased four years ago at a cost of $299,000, which the firm paid in cash. To date, the firm has spent another $38,000 on land improvements, all of which was also paid in cash. Today, the lost has a market value of $329,000. What value should be included in the analysi of expansion project for the cost of the land?

a. the sum of the cash paid to date for both the lot and improvement?

b. the original purchase price?

c. the current market value of the land plus the cash paid for the improvements

d. the current market value of the land

e. zero because the land and the improvements were purchased as cash

Explanation / Answer

d. the current market value of land, because the current value of land is the current cost, which should be included in calculations to find the true profitability of the expansion project.

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